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Furniture/Furnishings Weekly

Furniture and furnishing stocks performed well last week. All three of the WTR indexes outperformed the broader market, led by Residential Manufacturers & Suppliers (+3.3%), Commercial/Contract Furniture (+3.2%) and Home Goods Retailers (+2.7%), which outperformed the broader markets (-0.1% to +0.8%) and the Mass Retailers Index (+0.1%). Mattress demand remains weak. Tempur Sealy International (TPX) CEO Scott Thompson noted in his 1Q24 remarks, “You’d have to say the bedding industry is in a depression and has been in one for a number of quarters”, with demand down an estimated 15% industry-wide in the first three months of the year. For TPX, sequentially, demand was weakest in January and improved (though erratically) through April, where it was ‘flattish’. Higher-end price points were a bright spot. Sleep Country Canada noted a similar demand cadence north of the border. Thompson also expressed confidence that its Mattress Firm acquisition should close by the end of 2024. We continue to believe building strong, direct relationships with consumers remains one of the best ways to navigate an increasingly competitive bedding environment. Yet, the WSJ’s editorial board argued ‘protectionist’ mattress anti-dumping measures hurt consumers, and reflect regulatory capture by unions and industry incumbents. The ITC imposed punitive tariffs on eight countries in 2021 and domestic interests seek additional protection against 12 additional countries as import composition continues to rapidly evolve in what increasingly looks like a game of dumping ‘whack-a-mole’. Higher-end furniture and furnishings continue to look strong, relative to the industry. Arhaus reported mid- to high single-digit comps growth for February and March, following the tough January environment characterized by poor weather, and comps remain up mid-single digits in April. As noted earlier, TPX also saw strength at higher price points. Are COVID-induced excess savings depleted? The San Franciso Federal Reserve issued a new note suggesting that while the fiscal response to the COVID recessions, in conjunction with reduced spending opportunities, resulted in total excess savings of $2.1 trillion, the rate and size of recent drawdowns suggest that the excess savings may have been spent by 4Q23 or 1Q24 (past). Early in the pandemic, consumer furniture and furnishings spending surged due to the combined effects of the fiscal stimulus, few opportunities to spend elsewhere, and consumers noticing needs/wants in the home. All this, arguably, pulled demand ahead. With the economy reopened, spending shifted to “experiences” such as travel and dining. Now, with inflation and interest rates higher, recession clouds possibly forming, and excess savings largely gone, furniture and furnishings demand has suffered. Home sales, when they eventually regain steam, could be the catalyst everyone in the industry is looking for.